Standing Committee E

[Sir John Butterfill in the Chair]

Consumer Credit Bill

Clause 12 - Notice of default sums

Amendment proposed [this day]: No. 22, in clause 12, page 10, line 23, at end insert— 
'(6A) The debtor shall not be required to pay a default sum unless the liability to do so is clearly set out in the statement as required under subsection (7) of section 6 of this Act.'.—[Mr. Laurence Robertson.] 
Question again proposed, That the amendment be made.

Gerry Sutcliffe: The hon. Member for Tewkesbury (Mr. Robertson) moved amendment No. 22, which is based on arguments similar to those he raised in amendment No. 17. Since we did not support amendment No. 17, it will come as no surprise to him that we will not support amendment No. 22 either. I understand the spirit and intention of what he is trying to achieve, but the Government have identified a better process for ensuring that people are informed fully about the default sums incurred when they incur them. For those reasons I do not need to go into any great detail. It is important that people understand fully their default situations, but it would not be helpful to follow the route that the hon. Member for Tewkesbury suggests. Therefore I respectfully ask him to withdraw his amendment in the same spirit as he did so previously.

Laurence Robertson: I did not withdraw amendment No. 17; I pressed it to a vote, as acceptance of the amendment would—

Gerry Sutcliffe: I apologise. I have just had lunch with the British Retail Consortium, so my memory is slightly clouded. I remember now, and acknowledge that the hon. Member for Tewkesbury did push amendment No. 17 to a vote.

Laurence Robertson: I hope that the Minister enjoyed his lunch. I am sure that it was rather better than my lunch in the Tea Room.

Chris Bryant: Such is opposition.

Laurence Robertson: Such indeed. I did not withdraw amendment No. 17 because its acceptance would have improved the world of consumer credit, in the sense that it would have required the lender to set out clearly the terms of the agreement into which the borrower was entering. However, it was lost. Amendment No. 22 is consequential on that, so I do not intend to press it to the vote. It is important that the lender set out clearly the detailed terms of the agreement so that the borrower has no illusions about what he is entering into or the consequences of any default. Given that I did not win that vote, I do not suppose that I shall win  this one, so I shall not trouble the Committee any further with it. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.

John Butterfill: It will not be necessary, or even desirable, for all hon. Members to preface their remarks by stating their luncheon arrangements. [Laughter.] For the convenience of hon. Members a new selection list is available.
Clause 12 ordered to stand part of the Bill.

Clause 13 - Interest on default sums

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: Hon. Members will be aware of high-profile cases in the press in which compound interest on default sums has resulted in massive escalations of the original debt. That is of considerable concern, and it is addressed in clause 13. Creditors or owners are entitled to the cost of recovering the debt, but that should not unduly penalise debtors or hirers. The clause will prohibit the compounding of interest on default sums and allow the charging only of simple interest. A default sum will be defined in a new section 187A of the Consumer Credit Act 1974 as an amount payable, other than interest, by the debtor or hirer for any breach of their agreement. For example, this could include a late payment fee, a mispayment fee or legal fees. Any current agreements that permit compound interest will have to be amended to allow simple interest only.

Laurence Robertson: Will the Minister consider extending the restriction to arrears generally, or has that been ruled unnecessary or undesirable? People get into trouble on arrears generally, not only on defaults. If a lender attracts simple interest on the arrears or the default, the money will be repaid with interest. Did the Minister consider extending the restriction to that extent? Arrears are potentially more dangerous for borrowers than defaults.

Gerry Sutcliffe: The hon. Gentleman has raised a difficult issue. To my recollection, we considered how to re-examine other agreements, but decided that the most appropriate route was the one that we had chosen. If that recollection is incorrect, I shall come back to the hon. Gentleman with precise details from the consultation.
Question put and agreed to. 
Clause 13 ordered to stand part of the Bill. 
Clauses 14 and 15 ordered to stand part of the Bill.

John Butterfill: I am happy for hon. Members to take off their jackets, but it is customary to ask the Chair for permission.

Gerry Sutcliffe: I am suitably chastened, Sir John, and I apologise for removing my jacket without first asking your permission. I shall have to stop going to luncheons, because they are clearly not doing me any good.

Clause 16 - Time Orders

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: It is usual to spend some time on time orders, which are dealt with in clause 16. This morning, I mentioned the situation in Scotland with regard to time order applications. A debtor or hirer can ask the court for a time order in any action brought by a creditor or loaner to enforce a regulated agreement, or when they receive a default or non-default notice. Time orders may enable the debtor or hirer to have more time to repay the sums owed under the agreement and to remedy any breach of the agreement other than non-payment.
The time-order provisions of the 1974 Act are seldom used. Few are applied for and fewer are granted. Lack of information is part of the problem. Debtors and hirers are not aware of the time order provisions. We are working on ways to inform them about time orders, which will involve the inclusion of information on arrears and on default information sheets that will be produced by the Office of Fair Trading. The fact that debtors or hirers cannot apply for time orders at the appropriate times is part of the problem. 
The clause amends section 129(1) of the 1974 Act to allow debtors or hirers to apply for a time order after they have received an arrears notice. That ensures that the debtor or hirer has the opportunity to apply for a time order when the problem is still developing, not when it is too late. 
There is concern that people may use the time order simply to delay the inevitable, or that they will apply because they can. We will require people who want to seek a time order to go through certain steps. Debtors or hirers can make an application in the following circumstances: when they have notified the creditor or owner of their intention to apply for a time order and, in so doing, give details of their proposals; and that at least 14 days have passed since the notification was given to the creditor or owner. In practice, requirements should not be onerous. It is important to have simple criteria that can be met by debtors and hirers; compliance should also be simple. 
The clause encourages creditors and owners to seek and resolve payment problems early. That was the basis for some of this morning's discussion.

Jenny Tonge: Does it cost a debtor anything to apply for a time order?

Gerry Sutcliffe: That depends on the negotiations that take place on the plan that the debtor proposes to the lender. The arrangement would have to be in the best interests of both parties, but a time order provides time and opportunity to resolve difficulties at a very early stage. It is a useful tool for resolving problems, and we wish to see its use spread throughout the UK. We will be talking to the Scottish Executive and others in order to achieve a consistent approach across the UK.
Question put and agreed to. 
Clause 16 ordered to stand part of the Bill.

Clause 17 - Interest payable on judgment debts etc.

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: The next few clauses deal with the issue of interest payable on judgment debts. In England and Wales, money creditors' agreements include a term that allows them to continue to charge interest after they have obtained a judgment for a debt owed. That continues until the debt has been paid in full by the debtor. The term is included because the courts are prevented by law from awarding statutory interest on consumer credit debts.
Most creditors never make use of those terms, but some do. The problem is that debtors and hirers are often unaware of such terms, and do not appreciate that further interest may be accruing even though they are dutifully paying off the judgment debt. This is not an issue in Scotland and Northern Ireland. In those jurisdictions the court is empowered to order interest on judgment sums at rates specified in legislation. We are not banning the practice of seeking interest—creditors should be entitled to charge interest on an amount that is owed—but debtors and hirers should also be told what they might have to pay. 
We are not introducing a requirement for statutory interest in England and Wales. Few lenders seek post-judgment interest, and a statutory interest regime would mean that many people who are not required to pay interest now might have to in future. 
Clause 17 requires creditors or owners to notify debtors or hirers about the interest that continues to apply after the judgment has been made. Once the judgment has been made by the court, if the creditor or owner wishes to claim interest on the amount to be paid, they must notify the debtor or hirer and continue to do so at least every six months. The notice may be incorporated into any other required statements or notices under the 1974 Act. The debtor or hirer does not have to pay the interest if the creditor or owner has not complied with this proposed new section. This provision does not apply where a court has the power to order interest to be payable on a judgment sum. 
Question put and agreed to. 
Clause 17 ordered to stand part of the Bill.

Clause 18 - Definition of ''default sum''

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: It may help the Committee to look at the definition in clause 18 of the default sum. Clause 18 defines the term ''default sum''. The term is used in clause 6, relating to annual statements; clauses 9 and 10, which deal with notices of sums of arrears; clause 11, which deals with the failure to give a notice of a sum in arrears; clause 12, which deals with notice of default sums; and clause 13, which deals with interest on default sums.
The term ''default sum'' means the amount payable, other than the interest, by a debtor or hirer in  connection with a breach of the agreement, such as a charge imposed for late payment. In such cases, the terms and conditions of the agreement may require that a debtor or hirer should pay all or part of the outstanding credit before it would normally be due. This is often called an accelerated payment clause. Such payments are not default sums. 
Question put and agreed to. 
Clause 18 ordered to stand part of the Bill.

Clause 19 - Unfair relationships between

Chris Bryant: I beg to move amendment No. 8, in clause 19, page 13, line 13, at end insert—
'(bb) the debtor entered into the credit agreement as a result of the creditor sending him an unsolicited pre-approved application form;'.

John Butterfill: With this it will be convenient to discuss new clause 2—51A Prohibition of unsolicited credit-token applications.
'(1) It is an offence to give a person an application form for a credit-token unless he has specifically requested it. 
(2) To comply with subsection (1), a request must be made by the person making the request either by way of— 
(a) a document signed by that person; or 
(b) a recorded telephone call by that person to the person or company offering the credit-token.''.'.

Chris Bryant: It is a pleasure, Sir John, to sit under your chairmanship, not least because you are a senior member of the all-party Spain group, and I know that we are dealing with some Spanish practices this afternoon [Hon. Members: ''Oh!'']. Sorry, it was a very bad joke.
I confess to the Committee that there are several versions of how to remedy the same mischief. I suspect that the Minister will want to throw the words of the three very similar amendments into a pot and return with a version of his own. 
When we deal with any consumer issue, the primary consideration is that, in the first instance, it is up to the buyer to beware: caveat emptor. However, it is evident from the spirit of the Bill as written that consumer credit is a rather more complex matter. That is for many reasons, not least those highlighted by the appalling tragedy of the widow who this morning on the ''Today'' programme recounted the terrible situation of her husband getting into debt and his eventual suicide. I am sure that all members of the Committee will know the issues only too well from remarkably similar constituency cases. That is not an isolated case. 
Unfortunately, according to the statistics, 80 per cent. of people do not understand percentages, let alone the statistic of 80 per cent. The fact that people have so little financial literacy makes it very difficult for them to make their finances add up. More importantly, it makes it very easy for others to  market products to them that they possibly do not understand, and almost certainly cannot afford. 
In the run-up to Christmas, which is the time of year when many family budgets are at their most precarious, the industry sends out 140 million unsolicited, pre-approved credit card application forms. Last year, 13 million credit cards were taken out, increasing the number of credit cards in this country to 160 million. People are constantly being offered an increase in the credit that they are allowed on their credit card, even if they do not want it. The Bill attempts to deal with that process of offering easy credit.

Alistair Burt: I am grateful to the hon. Gentleman for the opportunity to support his argument. Yesterday, I had to phone my credit card company because I had lost one of my cards. In addition to issuing a replacement card, which was kind, the credit card company immediately offered me another card, notwithstanding the fact that I was ringing only to admit that I was so incompetent that I had already lost one. Almost any contact with the credit card company allows the opportunity for customers to create yet more debt. That is the type of problem that the hon. Gentleman described.

Chris Bryant: I cannot comment on the hon. Gentleman's incompetence, but I give him credit—I have just been urged to say that—for bringing the issue further to our attention. On a serious point, my experience last week of phoning to have my new credit card authorised for use involved the company trying to sell me another five products, none of which I wanted. I said very early on that I did not want any other products, and that I was simply ringing to get my credit card started again. The industry should examine how they train people to deal with customers, particularly over the telephone.
In my constituency, where there are many families whose financial situations are complex or finely balanced, it is all too easy for the process of acquiring further debt—which they could not afford in the first place—to lead to financial ruin. The Government's regulatory impact assessment in the run-up to the Bill's publication cited irresponsible marketing—and irresponsible lending based on irresponsible marketing—as one of the major mischiefs that the Bill aimed to tackle. In some measure, the Government dealt with the issue of marketing techniques through the Consumer Credit (Advertisement) Regulations 2004, which emerged late last year and which laid out the wordings that must be used when someone wants to consolidate a series of loans into a single loan that is then secured on their home.

Ian Liddell-Grainger: It may help the hon. Gentleman to know that some work has been done on the problem of people getting unsolicited mail through their front door. The most vulnerable, those who feel cut off from society, are among those most likely to reply because it gives them a point of contact with people outside their home. Does the hon. Gentleman agree that the Government should perhaps examine that area?

Chris Bryant: Absolutely; that is one reason why I tabled amendments. My amendments sit alongside the one that my hon. Friend the Member for Warwick and Leamington (Mr. Plaskitt) tabled, which we shall debate later. Changes in the banking code nod in that direction. Many banks and lenders have already decided that they will not send mailings and marketing products to people who are, for instance, aged under 25. However, Which? magazine's excellent report on the matter outlined significant details which remain to be considered. That report points to credit card checks, which we will debate when we come to new clause 1 and to the subject of mailings.
I had not expected to have much concrete evidence on this issue, until yesterday, when I received two letters. One was from Hfs Loans and announced: 
''Congratulations Your debt busting Hfs loan could be just days away. Pay off your existing debts! Save over £288 a month''.
It is difficult to work out how that company arrived at a figure of over £288 a month. 
At the bottom of the letter it stated: 
''I would like a cheque for:''
and one can fill in the amount that one wants. That is perfectly legitimate under the banking code. Under last year's regulations, such letters should state that potential customers must think carefully before securing other debts against their homes, as their homes may be repossessed if they do not keep up repayments on a mortgage or any other debt secured on it. There should be a clear statement of the annual percentage rate, and so on. I note that such letters cite a typical repayment of £100.39 a month over 300 months for £10,000 borrowed. That is not what most people would term a mortgage, although it is paid back over 25 years. Getting such a loan requires writing out a cheque for oneself with which one is then able to start the loan process. Such marketing is irresponsible, and I know that many of my constituents get dozens of those letters, week after week. If such a letter lies on someone's doorstep when he has financial problems, that is the day he will take it up. Those loans do not pay off people's existing debts; they roll them up, possibly into something that is more expensive than the debt they already have. 
That Hfs Loans letter was entirely unsolicited. At the same time, I got another letter from Capital One that asked: ''What's in your wallet?'' Remarkably little actually, but that is a minor detail. The letter stated that if the reader answered yes to certain questions, he or she would be guaranteed a card. One would think that those questions would be difficult—for instance, ''How much do you earn?'' or ''What is your state of credit?''—but in fact they ask whether the customer is aged 18 or over; a UK resident and able to prove their identity and address; whether they are bankrupt or listed on fraud databases; and whether they are able to provide a deposit of between £49 and £200 if required. I should like to tell the Committee that all those would be possible for me—

Paul Farrelly: My son, who receives umpteen of those application forms,  finds it difficult to answer that question honestly as he will be only six next week.

Chris Bryant: The company sent me that letter and asked for proof that I am aged 18 or over, which frighteningly betrays the fact that it has no idea how old I am. That shows the irresponsibility of the unsolicited pre-approved process that mostly takes information from other organisations without getting full information from a series of other creditors.

John Battle: It would be more honest if the information asked one question: ''May we have your house later, please?'' The hon. Member for Bexhill and Battle (Gregory Barker), whose constituents I do not know, referred to the impact of the mortgage market, and I suspect that home owners are being targeted to get them to increase their debts on the basis of the increasing value of their property. It is a scam to say to people that they should pay back the loan over 25 years, because interestingly that is likely to be the lifespan of their mortgage as well.

Chris Bryant: My hon. Friend has made an extremely important point, and I know that he was considering this problem before he entered the House. He took up such issues with some vigour in his previous line of work. Some may think that many people in Rhondda live in social housing, because it is one of the poorest constituencies in the land. However, 86 per cent. of people there own their homes, so they have assets that they may well lose. That is why areas such as mine receive a large number of unsolicited mailings.
The three exciting features that the Capital One credit card offers are: no annual fee; a typical APR of 29.9 per cent.; and—and this seems bizarre to me—the free choice of card design. Customers may pick one of about 20 credit card designs on the application form. It seems bizarre that more time and energy should be spent on the design of a credit card than on establishing whether someone has the financial resources to afford one. 
Interestingly, when studying the small print—I still have reasonably decent eyesight—I noticed that people can apply for the priority service option for faster processing of applications. A charge of £10 is added to the account for the service, but opting for this increases the APR from 29.9 per cent. to 34.2 per cent. Most people applying for such a card would never bother to look at that detail. What the leaflet does not state is the point at which people would start to pay interest on purchases, balance transfers or cash withdrawals. Such information makes a significant difference to whether someone can really afford a credit card. 
We heard on the ''Today'' programme this morning that one lady's husband had 22 credit cards. The amount of debt that can be racked up—which can then be moved on to one of these debt-busting Hfs loans—is so significant that people can lose not only their homes, but their sense of personal well-being, and that often leads to significant health problems. 
I have tabled two amendments. The first is an amendment to clause 19, which states that if a debtor  had entered into a credit agreement as a result of such an unsolicited and pre-approved mailing, that would in itself render the agreement into which the two parties had entered an unfair relationship, under the terms in the amendments to section 140 of the 1974 Act. I suspect that this amendment to the Act would stop these mailings immediately. There would be no point sending out unsolicited mailings, because no one would be able to enforce the terms in them. The Minister may feel that that process would be slightly too draconian. For that reason I have also proposed new clause 2, which would simply prohibit unsolicited credit-token applications. 
I hope that we manage to stop this process, because I know the mischief and damage that it does to too many homes and families. We should try to rectify the level of irresponsibility shown in some—but by no means all—parts of the market.

James Plaskitt: I support the principle that my hon. Friend the Member for Rhondda (Chris Bryant) has raised, although I suspect that he might not have the right vehicle or means of proceeding, as he intimated.
As the Minister will know, my colleagues and I on the Select Committee on Treasury have been working on those matters for a couple of years and endeavouring to push the credit card industry in particular towards greater transparency. My hon. Friend is absolutely right to place emphasis on the industry's unsolicited promotions. We have steadily pursued that matter over the past two years, and the industry has made only grudging movement. The Bill gives us an important opportunity to take some measures that the industry should be prepared to take itself, but—by and large—has not been keen so to do. 
When there are so many providers in the field and so many different products, and when the business itself is so intensely competitive, it is entirely reasonable that the industry should promote its products as much as it wishes in order to compete. However, there is a distinction between promoting products in general and promoting extensions of credit lines. When the industry crosses into that area, we begin to encounter some of the horrific problems that my hon. Friend mentioned, and which were mentioned on the radio this morning. Other such instances were brought to the attention of the Committee during its inquiry. The industry does many things of an unsolicited nature. I am particularly concerned about the unsolicited issuance of credit card cheques, and I have tabled an amendment on that matter, which I shall address later. 
We also unearthed examples of the unsolicited promotion of credit extensions. That is of particular concern because it is often aimed at those who are already nearing their credit limits and are, therefore, financially vulnerable. It can be very tempting, if an offer is made, to extend that credit line still further. 
The industry is not doing enough to run checks on the extent to which people make multiple applications or respond to many of the inducements to take up additional lines of credit. A key to making progress is to address the sharing of information among providers. The Treasury Committee unearthed evidence that there is simply not enough sharing of information, and I hope that the Minister can assure us that there are measures in the Bill—if not in this clause—to help us to secure better sharing of information among providers. If we can achieve that, we will minimize the chances of financially vulnerable people piling up multiple ownership of cards and building up debt, which leads to the horrific consequences such as we have seen.

Ian Liddell-Grainger: The hon. Gentleman has made some good points. It is a particular problem that credit card companies try to push people to take on as many cards as possible, because they want them to repay only the minimum amount and create more debt. The hon. Gentleman is absolutely right, one of the biggest problems is that the industry is determined to push those cards for that reason, and I am afraid that it will probably take legislation to stop that. Does the hon. Gentleman agree?

James Plaskitt: The hon. Gentleman is right. The Treasury Committee has raised that issue with the industry many times, and has moved it considerably on that point and has got it to put clearly on statements what will be the consequences of making only minimum repayments. It was interesting that when we asked the chief executives of the banks, when they were giving evidence to the Committee, how long it would take to pay a debt if minimum repayments were being made in a given scenario, they could not work it out. If they could not work it out, and the henchmen behind them in the second row could not work it out either, why should they expect a customer with far fewer resources to work it out? We have encouraged them and, to their credit, many now include statements about the consequences of making only minimum repayments, which gives the customer some indication of how long it would take to pay off the debt and how much the debt would rack up if they were tempted to do that.
In the context of my hon. Friend's amendment on unsolicited promotion, I put another example to the Minister on risk-based pricing. We all understand why the industry needs to engage in risk-based pricing and, as an approach in itself, there is nothing inherently wrong with it. 
However, if a credit extension is promoted to a customer in an unsolicited way and is advertised at one given APR, the customer may respond positively only to find that, when the card is used, with the credit having been extended, the APR is much higher because of the risk attached to the customer. That further example of the unsolicited nature of so much of the industry's promotion is an unacceptable marketing practice. 
Finally, the industry keeps telling us that unfair relationships can be dealt with through improvements to the banking code or to its own code of practice. I acknowledge that it has made some welcome  improvements to the code. Crucially, however, in many areas that relate to unsolicited marketing and promotion, the industry has not made sufficient moves with regard to its code. I hope that the Minister can reassure us that, if the amendment is not deemed to be totally suitable, measures can nevertheless be taken that will help us to plug the gaps that the industry should have plugged by now.

Gerry Sutcliffe: I congratulate my hon. Friend the Member for Rhondda on the way in which he moved the amendment and my hon. Friend the Member for Warwick and Leamington on speaking to it. Although we may disagree on the detail, there is no disagreement about the principle of what we are trying to achieve.
I have seen the recent press coverage about Mr. Cullen; I am sure that the entire Committee wishes to record its sincere condolences to the Cullen family for the circumstances in which they find themselves. It is not unreasonable that Mrs. Cullen should ask why her husband, as a result of having so many credit cards, found himself in such a difficult position. My hon. Friend the Member for Warwick and Leamington is right: sharing information is vital to what we are trying to achieve. It is also what the Select Committees on Trade and Industry and on Treasury are trying to achieve. My hon. Friend the Member for Bassetlaw (John Mann) brought to my attention a case similar to Mr. Cullen's. There are too many such incidents. 
Although I said this morning that credit is a good tool if people use it wisely, we must, through legislation, make the industry understand that such a price is not worth paying, given the misery it causes people. I acknowledge what my hon. Friends have said about the industry's attempts to improve the situation through the banking code, but we must go further. 
Unfair relationships go to the heart of what we are trying to achieve on many issues. Hon. Members raised concerns, not only on Second Reading, but in various Committee hearings and in the House. The test of unfair relationships in clause 19 is a new one that replaces the existing extortionate credit test. We feel that the hurdles on that test are too high. It allows for the re-opening of credit agreements where a court finds the transaction as a whole to be unfair. That will be determined by references to all the relevant circumstances, including the terms of the agreement and the parties' conduct. The hon. Member for Tewkesbury chided me earlier, saying that many people say that some parts of the Bill are vague. On the unfair credit test, I am sure that the challenge will come forward from my hon. Friends and from the Opposition that it remains too vague. 
I passionately believe that it is right and proper that the definition should be as wide as possible. We should not try to restrict the conditions of the test, which we might do were we to accept the routes towards which some amendments have pointed us. 
Clause 19 permits the courts to consider anything done or not done by or on behalf of the creditor either before or after making the agreement or any related agreement. Clause 19(2) makes it clear that the courts may have regard to any relevant matter in making a determination. 
The drafting of clause 19 is wide enough to allow the courts to take into account the factors that the hon. Gentlemen list in their amendments: whether the creditor has entered into the agreement as a consequence of approved unsolicited application form; whether the creditor has lent responsibly; whether the terms of the agreement have been set out clearly in a pre-agreement statement; whether the lenders comply with all the requirements of the Act; whether the initial terms of the agreement may be considered unfavourable when compared to similar agreements; and whether the running of the agreement might be considered unfair to the debtor. It can also consider any other relevant matter. 
I hope that the Committee will accept our reasons for following this course of action to ensure that anything can be considered in the test through the court and in the redress mechanisms that we have put in place later in the Bill.

Chris Bryant: Does that mean that the Minister would advise people who send unsolicited pre-approved credit card application forms and loans of the kind that we have been discussing to desist because the courts might find that they had entered into an unfair relationship?

Gerry Sutcliffe: My hon. Friend will understand, and I forget the judgment—I am sure that I shall be reminded of it by way of information that will come quickly—

James Plaskitt: Pepper v. Hart.

Gerry Sutcliffe: Thank you.
If a Minister goes down the route, along which my hon. Friend the Member for Rhondda has tried to entice me, and comments on a matter in Committee, the comment may be used as evidence in court. That is why I do not wish to do that: the courts will have an opportunity to look at all the issues before they make judgments on them. I will not be tempted into saying what is or is not unfair; what I say is that lenders should lend responsibly. 
The hon. Member for Bridgwater (Mr. Liddell-Grainger) mentioned the minimum payment, and we have tried to ensure that the consequences of making only a minimum payment are there for the borrower to see.

John Battle: What concerns me is that the unfair relationship will be tested in court. In court will be the person who has borrowed and the lender; the power of the lender to make a case will, I suspect, be much greater than that of the borrower. I press the Minister to say whether he thinks the balance is yet right. We welcome the Bill, but can we redress the balance a little to ensure that the borrower can challenge the lender, and can we say that the relationship is unfair? The borrower may say: ''I cannot prove unfairness absolutely in minute detail, because your lawyers will argue against me while I cannot even get legal aid to make my case.'' How can we ensure that the borrower is properly backed up in court?

Gerry Sutcliffe: There is a process for reducing the test from what it is now. It is very difficult to get to court at present on the basis of the extortionate credit  test. That is why we favour the unfairness test. There are redress mechanisms: if a borrower is not happy with a lender's method of dealing with matters, he can make use of the alternative dispute resolution; if he is unhappy with that, he can go to court. We have struck a balance in outlining responsible lending and have tried to make matters clear and fair for the consumer. There is balance.
At present, the balance of disproving the extortion is in favour of the lender. The consumer need only make an allegation that the transaction is extortionate, and he will succeed if he can satisfy the court, on the balance of probabilities, that it is unfair. That is where the balance lies for the consumer. 
We should give the unfair credit test a fair wind, and I ask hon. Members to trust our judgment. If we lay down restrictions we may miss some of the cases that we are trying to prevent.

Ian Liddell-Grainger: The Minister is making an interesting case. However, I have just been reading that debt in this country will pass £1.1 trillion in the middle of this year, and it is rising by 15 per cent. a year. Are we to trust the Minister to sort things out? His right hon. Friend the Member for Leeds, West (Mr. Battle) made a valid point that the Bill will not work because debt will continue to increase. There are 1,300 credit cards on the market now and presumably there will be more to come.

Gerry Sutcliffe: I will resist the temptation to make a detailed response. We had a discussion this morning about the £1 trillion debt when I exchanged words with the hon. Member for Tewkesbury about its make-up.
I am concerned to get the Committee to understand the nature of the unfairness test and its possibilities. I am happy to say to my right hon. Friend the Member for Leeds, West that I am confident that the balance is more in favour of the borrower now as a result of our proposals.

John Battle: I meant that it should be more in favour of the borrower than it was under the 1974 Act.

Gerry Sutcliffe: I shall not split hairs too finely. We must ensure that we do not go for 30 years without reviewing the consequences of the new legislation. We must see how the legislation is working, and if it does not work as hon. Members suggest it should, we shall have to look at it again. If we restrict the definition we may miss some cases, and borrowers' positions will not improve as we had hoped.

Gregory Barker: Is the Minister comfortable that the legislation, framed as it is, gives sufficiently robust guidance to the courts? Is there a danger of our asking the courts to make decisions on cases in which we ought to be more robust ourselves about the judgment we expect?

Gerry Sutcliffe: Let me set out the areas that we expect the courts to consider: the start of an agreement, its conditions and lifetime, and what happens if it goes wrong. We want the courts to  have enough guidance to understand the intention behind the Bill. I do not believe that we have been vague in saying how the relationship should be regarded.
A difficulty could arise if hon. Members asked me to list the circumstances required when applying for the description. That might make it difficult for the courts to consider circumstances not covered by a list. We are very clear in setting the issues—[Interruption.] The hon. Member for Bexhill and Battle may not think so, but we are very clear that we want the courts to look at existing relationships. Remember, we are replacing a very high test of extortionate credit with a balance very much in favour of the lender. The unfairness test, together with the redress mechanisms we have in place, will shift the balance towards the borrower. It ensures that the borrower has the ability to prove that the test is unfair; the lender has to prove that it is not.

Laurence Robertson: May I ask the Minister for a point of clarification? I am not trying to trip him up—I know he will have the answer. Under which clause or subsection will the Minister or the Secretary of State be able to issue guidance to the courts?

Gerry Sutcliffe: In normal circumstances, we will set out the parameters within which we want the courts to operate. I believe that I have already set out what the relationship should be. We shall examine the Office of Fair Trading guidelines and our code of practice. There will also be the evidence that developed from the alternative dispute resolution process. The courts will have powers based on the information developed as the Bill progressed. The hon. Gentleman asked how we will do that: we will do it through secondary legislation, if that is required.

Laurence Robertson: I am grateful to the Minister for that. However, I am not sure—I am not a lawyer—that the Bill provides that opportunity. The Minister is getting advice. I would like to hear what that advice is because I would like the matter cleared up. I would be very pleased to be proved wrong.

Gerry Sutcliffe: I can help the Committee by looking at the Bill's requirements on the unfair relationships test. Section 140A of the 1974 Act sets out what the court can do:
''The court may make an order under section 140B in connection with a credit agreement if it determines that the relationship between the creditor and the debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair to the debtor because of one or more of the following—''.
The section then sets out the terms on which a judgment would be made. I hope that helps.

Laurence Robertson: I may be getting into water deeper than I can cope with, not being a lawyer, but, with respect, that is not what I asked. I asked what opportunity there is for the Minister to introduce a statutory instrument to guide the courts. The Minister said that the Office of Fair Trading may be able to offer guidance, but I am not sure to what extent the Minister can guide the OFT. He knows that we have had that dispute on a separate matter, which we will return to later in the Bill. Nowhere on the face of the Bill is there an opportunity for the Minister to issue  guidelines to the court about the meaning of ''unfairness'' that would be sufficiently close enough for interpretation by the court.

Gerry Sutcliffe: We are entering dangerous ground. Let me be very clear about what the unfair relationships test says: the circumstances are outlined on the face of the Bill.

Laurence Robertson: They are not.

Gerry Sutcliffe: The hon. Gentleman says they are not, but they are. The Secretary of State will not issue guidance. The Office of Fair Trading will issue guidance as to how it will enforce the test under part 8 of the Enterprise Act 2002; it has to be in the collective interest of the consumer.

Chris Bryant: The Minister may be interested to know that section 44 of the 1974 Act gives him the powers that he needs.

Gerry Sutcliffe: I am ever grateful to my hon. Friend for saving my face by pointing to the right regulation.

James Plaskitt: Will the Minister comment on clause 19, new section 140A(2)? It states:
''In deciding whether to make a determination under this section the court shall have regard to all matters it thinks relevant''.
Will the Minister indicate the type of things that he thinks will qualify as relevant?

Gerry Sutcliffe: I do not want to do that, for the reasons that I outlined to my hon. Friend the Member for Rhondda. If I become prescriptive about the issues relating to the detail of individual tests, that will restrict the ability of the courts to look at all elements of the relationships between the lender and the borrower when trying to discern whether a test or agreement is unfair. That is why I have resisted the temptation.

Mark Lazarowicz: I understand why the Minister is resisting countless temptations to go along the road of setting out his views on what an unfair test might consist of, and why he does not wish to that, and I will not ask him to do so. Perhaps, though, he will be prepared to go as far as to say that it is certainly the intention that those clauses should be interpreted as broadly as possible. They are intended to be a broadening of the situation as regards the debtor vis-à-vis the creditor compared with extortionate tests. If he is prepared to say that, it would be helpful, and I hope within the limits to which he is prepared to go today.

John Butterfill: Order. We are straying extremely far from amendment No. 8 and new clause 2. I appreciate that the debate is fascinating, but it may be more appropriate to raise those points under clause 19 stand part. If hon. Members wish to pursue the line they have, I shall probably rule a clause 19 stand part debate inappropriate.

Gerry Sutcliffe: Thank you, Sir John, for that excellent guidance. The difficulty with the situation that we are in is the relationship contained in clause 19, the unfairness test and issues that flow from that. To help the Committee and to follow your ruling, we wish to resist amendment No. 8 and new clause 2, not  because of how my hon. Friend the Member for Rhondda has moved those, but because they are not the appropriate avenues via which to reach where he wants to be. We want to do that through clause 19.
My hon. Friend the Member for Warwick and Leamington mentioned new clause 1, which we will discuss later, and that may be a more sensible route for unsolicited credit card checks. My hon. Friend the Member for Rhondda has expertly got us to go round the houses, and he nearly got me to say something that I did not want to say. In the spirit of what he has said, I will reflect on the issues that he raised, although the unfair credit test is the right way forward. I understand how strongly he feels about his amendments, but I ask him to withdraw.

Chris Bryant: I think what the Minister meant to say, as outlined by my hon. Friend the Member for Edinburgh, North and Leith (Mr. Lazarowicz), was that broadly speaking he hopes that those practices will not continue and that anything that might look like irresponsible lending or irresponsible marketing will come to an end. That is because, the clause having been drawn so widely, the courts will almost certainly feel able to deal robustly with anybody who has engaged in something that, prima facie, is unfair, in the most general sense of the term, because, for instance, there has been unsolicited pre-approved credit or irresponsible marketing of any kind.
My only problem with that—I still urge the Minister to look again before we come to Report to see whether there is a way to can put some element of this point more clearly into the Bill—is that it will lead to a period of uncertainty both for the industry, which is important, and for lenders, who will have to be involved in at least one court case to prove their situation. The simple reason that that still matters relates to the line in Richard II when John of Gaunt makes his wonderful speech describing this England—it does not apply to Wales of course—as 
''This other Eden, demi-paradise.''
Of course, everybody remembers that glorious bit, but the last words are that this England, ''is now leased out''. If we are to put a proper stop on the degree to which this England, and the rest of the United Kingdom, are being leased out, the Bill will have to be more specific. 
Having listened to everything the Minister said, and although still encouraging him to consider inserting some other wording on Report, I beg to ask leave to withdraw the amendment. 
Amendment, by leave, withdrawn.

Jenny Tonge: I beg to move amendment No. 31, in clause 19, page 13, line 19, leave out
'matters relating to the creditor' 
and insert 
'whether the creditor lent responsibly'.

John Butterfill: With this it will be convenient to discuss amendment No. 23, in clause 19, page 13, line 19, at end insert— 
'(2A) In particular, when determining whether an agreement is unfair, the court should consider— 
(a) whether the terms of the agreement, which the lender is seeking to enforce, were clearly set out in the pre-agreement statement provided by the lender to the debtor as set out in subsection 7B of section 6 of this Act; 
(b) whether the lender has complied with all other requirements of this Act and the 1974 Act; 
(c) whether the initial terms of the agreement might be considered to be significantly unfavourable to the debtor when compared with other similar agreements, when there are no compensating factors within the said agreement available to the debtor; and 
(d) whether the running of the agreement might be considered to be significantly unfair to the debtor when taking into account the relative financial strength of the parties to the agreement.'.

Jenny Tonge: To continue John of Gaunt's speech, he said that England was:
''This precious stone set in the silver sea''.
If that is so, it indicates that there is a long way to go before we run out of credit. I began by thinking that this Bill was a good thing. It will control loan sharks: let us call them by that name because that is how we think of them. We must get to grips with loan sharks, and that is what we shall do.

Chris Bryant: I am sorry, but it is not. Loan sharks are a particular version of what some of us have become used to and, in the Bill, we have been careful to ensure that more people move to the responsible end of the market. It is tempting to use terms such as ''loan sharks'', but they are unhelpful.

Jenny Tonge: Such terms may be unhelpful, but the way in which many of the credit card companies behave is irresponsible. I am more and more sceptical as to whether this Bill will tackle that. We hear that the main control will be the unfair relationship test, but we do not know what unfair relationships are and will have no guidance on them. It will, therefore, be difficult for a debtor to take a creditor to court, because the creditor will have many more resources at his disposal.

Gerry Sutcliffe: The hon. Lady and the Committee must be careful not to throw the baby out with the bathwater. In the context of the whole Bill, and in relation to the regulations resulting from the consumer credit White Paper, we seek to ensure that there is responsible lending and borrowing, that there is education for the consumer and that the redress mechanisms, which at present do not exist, are in place. The extortionate credit test is too high a hurdle; the unfair credit test is better. It is right and proper that we discuss unfair credit, but it is wrong to say that the Bill will not help the situation. It has been welcomed by the industry, by consumer groups and, as I understand, by all political parties at Second Reading.

Jenny Tonge: I did not say that the Bill would not help at all. I said only that I was a little depressed that it would not help as much as I thought.
It was interesting that the Minister, in summing up the last two amendments, over and over again used the  phrase ''whether the creditor lent responsibly''. The amendment would insert those words into clause 19. It is simple: the clause would say that the creditor should be responsible. 
We have heard a great deal about credit cards. The hon. Member for Rhondda told us—and I mentioned it this morning—about what comes through people's letterboxes. However, I wonder whether anyone realises how much housewives are preyed upon. I am not the sort of housewife who shops every week in a particular store; when I run out of something, I go to the place nearest to wherever I happen to be. I am not, therefore, someone who gives into store loyalty cards, but nowadays it is impossible to pass a checkout in any store without a conversation that goes: '' Do you have a loyalty card?'' ''No.'' ''Would you like a loyalty card?'' ''No.'' ''Well, if you have a loyalty card you can build up points and that means you can get your goods much cheaper.'' ''I do not believe that, and I am not interested.'' If people manage to run the gauntlet of the checkpoint and get away without signing up for a loyalty card, that is okay. If not, within days their post will bring offers of credit on loans for holidays or cars. That is another section of the market that puts pressure on people. 
Why is it that the person whom we heard about on ''Today'' this morning can get another loan on his 22nd credit card when he is already in debt on 21 cards? That issue has not yet been mentioned in Committee. Why is there no cross-referencing? A student son of a friend of mine got himself into great difficulties and took out credit card after credit card. How can that happen? The Government talk a lot about means-testing for pension credit. Why can people not be means-tested before they take out loans on credit cards? I do not understand. We hope that the Minister will accept this modest amendment.

James Plaskitt: The hon. Lady's amendment seeks to introduce the concept of whether the creditor lent ''responsibly''. If it were to be accepted, what mechanism would there be to determine what constituted ''responsibility''?

Jenny Tonge: People will be told, ''Don't worry, dear, if you get into debt, there's the 'unfair relationship' test in the courts.'' However, we do not know what the guidelines are for an ''unfair relationship''. I am in a total fog about this. We seem to be going around in circles. Nobody can tell us anything about the limits or what is expected of a credit card company. Is it an unfair relationship if someone is allowed to take out a loan on a credit card when the company knows that the borrower already has loans on 21 other credit cards? I would say that that is an unfair relationship, but we do not know.

Chris Bryant: I completely agree about responsible lending, and that has been the tenor of my amendments. In the light of what the Minister has said, the difficulty is that two broad concepts would be introduced into the Bill, neither of which is tightly laid down. In court, the two concepts might conflict. Therefore, it might be more sensible not to insert a provision into the Bill. However, it is entirely sensible to have had this debate.

Jenny Tonge: I accept what the hon. Gentleman says. However, in that scenario, there is no way to prevent people accruing horrendous debt. I am a medic; I am thinking of prevention rather than cure. The courts may be the cure-all to wrap up everything at the end, but that is no good to someone who is already in terrible debt.

Gerry Sutcliffe: I will take your guidance, Sir John, because I do not want to stray into the clauses that deal with licensing. However, that area is also protected, in that a lender's performance will be examined before a licence is issued. Lenders will have to comply with criteria tests. That might help the hon. Lady to understand why we are where we are in relation to being fair to borrowers.

Jenny Tonge: I have come to the Bill late in the day, and I have not read its text in detail. Is the Minister suggesting that it will be the lender's responsibility to cross-check that people are not already in debt or to carry out a means test to ensure that they can make their payments?

Gerry Sutcliffe: We have asked the industry to share information. We have said that hiding behind the Data Protection Act 1998 is not appropriate. The industry is examining ways to improve the sharing of information, because we do not want people to accumulate the number of cards to which the hon. Lady referred in relation to the incident that was reported in the press.

John Butterfill: Order. We shall not debate now the issues that will be debated under clauses 28 to 31.

Jenny Tonge: I thank the Minister once again for his patience. I am somewhat more reassured.

Laurence Robertson: We have had a very good discussion on this and, indeed, the previous amendment, and that makes it unnecessary for me to repeat many of the arguments that have been made. However, the Committee would be disappointed if I did not refer to my own amendment, No. 23 in some detail. I admit that its drafting may not be perfect. The Opposition do not have the benefit of officials or parliamentary draftsmen. I do not say that maliciously; it is true, but it may not have captured exactly what I was thinking. However, I have tried to help to define ''unfair''.
Section 138 of the 1974 Act goes into some detail about what extortion is, whereas the Bill does not go into any detail on what is meant by ''unfair''. I am a bit surprised that the Bill does not go into the same degree of detail. For example, section 138 (2A) mentions interest rates prevailing at the time. Regardless of whether we wish to compare what lender A offers and lender B offers, my point is that the Act goes into far more detail about what is meant by ''extortion'' than the Bill goes into about what is meant by ''unfair''. 
When introducing a new concept into English law—and the test of unfairness is a new concept—we need to be a bit more prescriptive. The most important word in the English legal system is probably the word ''reasonable''. I do not suppose that that word is defined anywhere, but the assumption is that what is reasonable is what the man on the Clapham omnibus  thinks is reasonable. What test do we have for the meaning of the word 'unfair'? I suspect that it will be a matter of several court judgments before we establish precedent and are able to operate in the industry with any degree of certainty. 
There will be a time—from now until those court judgements have been made—in which there will be a great deal of uncertainty, not only in the minds of consumers, but also in the mind of the industry. I said this morning that one of the biggest concerns about the Bill is that it is so uncertain and vague in so many areas. This clause, in particular, has excited the industry more than any other in the Bill, because people simply do not know what ''unfair' means. People also do not know how the definition will be determined. The exchange that we had a few moments ago with the Minister did not satisfy me that we have made any progress on that.

Mark Lazarowicz: When I first considered this issue, I had some sympathy for the notion that it would be right to try to set out the test for unfairness in more detail. I do not want to stray into a stand part debate, but does the hon. Gentleman not agree that his proposed new subsection (2A)(c), in which one of the tests that a court should consider would be
''whether the initial terms of the agreement might be considered to be significantly unfavourable to the debtor when compared with other similar agreements, when there are no compensating factors within the said agreement available to the debtor'',
is itself a vague definition that would require the same sort of tests to be applied to it by the courts in due course? The difficulty of his approach is the danger that it becomes too restrictive to rule out any new devices that are dreamt up by the rogues that unfortunately exist in the financial services industry and elsewhere.

John Butterfill: Order. I have already said that the debate on these clauses is becoming so wide that there will be no room for a stand part debate on this clause.

Paul Farrelly: On a point of order, Sir John. Are you ruling that there will there be no stand part debate?

John Butterfill: There will be no stand part debate.

Paul Farrelly: I was reserving my remarks for that debate.

John Butterfill: Then I think it would be better if the hon. Gentleman sought to catch my eye.

Laurence Robertson: I do not agree with the point made by the hon. Member for Edinburgh, North and Leith, because clause 19(2A) states:
''In particular, when determining whether an agreement is unfair, the court should consider—''.
However, that does not mean that nothing else could be considered. 
On the hon. Gentleman's other point about whether the initial terms of the agreement might be considered unfavourable, I accept that that may be considered a little prescriptive, but section 138 of the Consumer Credit Act 1974 is even more prescriptive. Section 138(3)(a) and (b) mention age, experience, business  capacity, state of health, and the degree to which a person was under financial pressure at the time of making the credit bargain. I do not claim that that is the right approach, but it is our approach for tackling the meaning of the word ''extortion''. However, we have absolutely no guidance for tackling the meaning of the word ''unfair''. 
Before the hon. Gentleman made his helpful intervention, we were having an exchange with the Minister about his ability to introduce a statutory instrument to give guidance to the courts. I am not satisfied that he has that ability under the Bill, and I cannot see that he has it under the 1974 Act because it does not address unfairness. I am not a lawyer, and I would gladly be corrected on that matter. However, I am concerned that he would not have the opportunity to introduce those statutory instruments.

Chris Bryant: We were not talking about unfairness, but the matter of advertising in section 44 of the 1974 Act. Section 189(1) is so widely drawn in its definition of advertising that it would give the Minister the powers that he used last year to provide guidance on unfair advertising. However, I accept that the hon. Gentleman is correct because the Minister would not have any power to define an unfair relationship.

Laurence Robertson: I am grateful to the hon. Gentleman for clarifying that matter. How do we give that guidance to the courts?

Gerry Sutcliffe: The hon. Gentleman is not trying to be difficult; he is trying to get to the core of the issue, and I respect that. However, he said—or implied—that the term ''unfair'' was a new legal precedent; it is not. He will be aware of the principle of unfair dismissal in employment legislation and the FSA's principle of fair treatment of customers. There is a principle of fairness, but this is about unfairness tests. I will try to reassure him, but I understand the difficulties.

Laurence Robertson: I accept those comparisons. However, a mass of employment law comes into play alongside the term ''unfair''. While I accept that I have been corrected to some extent, my point may also have been proven because the mass of employment law makes it easier to define unfairness, whereas it is not easy to determine that in this matter.

Alistair Burt: There is no disagreement between respective Front Benchers on the concept of unfairness as it is a matter with which we are all familiar. The issue is the evidence upon which a decision on fairness or unfairness is based. At the heart of my hon. Friend's argument is an attempt to establish—in the absence of a body of case law—the building blocks upon which a decision on fairness or unfairness will be based. Notwithstanding the perfectly correct point made by the Minister about the concept of unfairness, we, like borrowers, are still in the dark about those building blocks unless the matter is settled in the way that has been suggested by my hon. Friend.

Laurence Robertson: I am grateful to my hon. Friend who is a lawyer and knows more about these issues than I do. We have probably exhausted that point, but it will be important to gain a degree of certainty not  only for the industry, but for the debtor because on the matter of establishing unfairness, a case could be brought by the creditor—or indeed the debtor—if I have read the clause correctly. There needs to be more certainty. However, I fear that several court cases will be heard before we achieve that certainty.
My amendment refers to amendment No. 17, which fell after I pressed it to the vote. My amendment asks the court to consider whether the lender has set out the exact terms of the agreement. The court should then ask whether the lender has complied with all the requirements of the Bill and the 1974 Act when determining whether an agreement is unfair. It should also ask whether the initial terms of the agreement might be considered to be unfavourable to the debtor when compared to other similar agreements. That is not a new concept; it was part of section 138 of the original Consumer Credit Act 1974. No Government considered it so unreasonable that they hastened to change it—it has taken 30 years to get to that point. 
Proposed new section 140A(2A)(d) refers to 
''whether the running of the agreement might be considered to be significantly unfair to the debtor when taking into account the relative financial strength of the parties to the agreement.''
That concept is already in the legislation that we are seeking to amend. The amendment seeks to cover the establishment and the operation of the agreement, and there is scope to discuss its terms. There is also scope for arguing whether something is unfair or asking how far one has to vary from what is normal before it becomes unfair. I accept that that is a difficulty, and I sympathise with the Minister. Obtaining certainty of advice is difficult. 
I reiterate the comments of the hon. Member for Richmond Park (Dr. Tonge) in that the longer that I work on the Bill, the less certain I become that we will be able to protect vulnerable people from debt, extortionate charges, interests rates, compound interest and default fees, all of which lead to problems such as those that we heard about on the radio this morning. Citizens Advice has published an interesting briefing that details horrendous stories about how people borrow £1,000 and end up owing £30,000. Members are aware of those situations. Unless the Bill is clearer, such cases will continue to exist. 
It is too easy to borrow money. After Christmas I went into Marks and Spencer, which is a reputable company, where I paid around £200 for several items, mainly clothes. I was not really paying attention; I was hot since I had my coat on, I was carrying many messages, and I wanted to get out of the store. I was informed that if I subscribed to a store card, which I imagined to be similar to a petrol card on which one can amass points, I could get 10 per cent. off my purchases. That would have saved £20 pounds. I filled in the form and did not think any more of it until a card appeared in the post about a week later. On the accompanying piece of paper, bigger than any other writing, was the £7,500 credit limit. That occurred without me really thinking about what I was doing, so it serves me right. I do not seek to blow my own trumpet. I am not particularly financially literate. I suppose that the company did a credit check, but they  certainly did not know much about me. I was later informed that the card was not a store card but a MasterCard that could be used anywhere. That was a double-whammy, to coin an old phrase.

Alistair Burt: That is a good phrase.

Laurence Robertson: It certainly is a good phrase; however, I digress, Sir John. I was alarmed. Presumably, I could have gone out and spent that money that same day. I did not, and I will not spend it, because I do not believe that debt for debt's sake is a good thing. That is one recent example.

Gerry Sutcliffe: I am sorry to pursue the hon. Gentleman, but this issue is at the heart of the Bill. Is it the Government's responsibility to determine what products are available in the credit card market or to determine how consumers seek redress? I have some sympathy, given the circumstances in which he obtained that credit card, and that would be a good example for the unfair credit test. Is it the Conservative party's view that the Government should determine what products the industry should offer?

Laurence Robertson: I gave the example to support the remarks of the hon. Member for Richmond Park about it being too easy to obtain credit and money. I wonder how it was possible for the gentleman of the poor widow who was on the radio this morning to obtain 22 credit cards.
It is certainly not for the Government to determine whether I should get a Marks and Spencer store card. It is none of the Government's business, and I did not come into politics to encourage the Government to interfere more in people's daily lives—quite the reverse. However, there is a massive amount of personal debt in this country, which is not entirely due to house prices and not entirely asset backed. It is a big problem for some people—I do not know how many. Not everybody who has borrowed money is in trouble. I borrowed money for my house and my car. I am not in trouble with that, but many people are. 
I am concerned about people's inability to ensure that they are treated fairly because they are not lawyers and do not necessarily understand what constitutes a contract. I do not think that many people understand what the essential ingredients of a contract are. People seem to think that if a big company states that it can charge X for a letter or for a default on a payment, it is entitled to do so. Many people are not financially literate; most certainly have no legal training or, indeed, legal knowledge. I am concerned that the Government help those people and prevent them from being ripped off. No one is concerned about honest agreements that involve, for example, people taking out loans that they can pay off at an interest rate of 5 per cent. I am not suggesting that the Government should restrict the number of products available. I do not think that they could if they wanted to. However, I am concerned that protection is afforded to people who are not financially literate or legally educated. I am not sure that the Bill goes far enough in doing that.

Chris Bryant: The hon. Gentleman said earlier that the company had no idea who he was when he got the  card. The hon. Member for Richmond Park said that perhaps there should be some sort of means test. For clarification, would the hon. Gentleman put his opinion on that on the record? Even if the Minister is not able to make such comments, I am sure that the fact that this has been said by all parties will be significant in how the industry views the likely outcome of today's debate. The issue is clearly the sharing of information between companies. If someone tries to sell a card or loan to a person without having any information about him—not even whether he is under 18—that must, prima facie, be an example of irresponsible lending.

Laurence Robertson: I think, not for the first time, that the hon. Gentleman makes a very good point. My amendment No. 25 deals with credit reference agencies and although my intention was slightly different, it may just cover his point. It is probably largely up to the industry, but if companies were not so able to rip some people off as they are, they might not be so quick to lend money without taking into account people's circumstances. There is probably a logical thread in that.
If we apply to borrow money for a house, our income is checked. If we try to top that up more than our income allows, we will not be lent the money. That is because it is not as easy for those companies to rip others off to compensate for bad loans that they may have made. In the credit card and in the loan shark industry—if I may put it so crudely—that is not the case. It is a bit like third-world debt. Some organisations have lent money at extortionate rates of interest to compensate for the possibility that country B may not repay them. We have a similar situation, and I am not sure how effectively the Government can deal with it. They can act by reducing the burden of the test from extortion to unfairness. I welcome that, but let us clarify the matter so that we can squeeze out those who simply lend money to anyone. 
I do not know how on earth that poor gentleman got 22 credit cards. I do not think that many of us would be able to do that, but it is obvious that some people can. I hope that I have made the case for defining the word ''unfairness''. I accept that my amendment is not perfectly worded and that parts of it are better than others; but it is a genuine attempt to help the Government with the Bill rather than to get in the way.

Paul Farrelly: I am grateful to have caught your eye, Sir John.
Sitting suspended for a Division in the House. 
On resuming—

Paul Farrelly: Clauses 19 and 20 introduce the concept of unfair relationships in credit agreements. They replace the old concept of extortionate credit bargains, which is contained in the 1974 Act. We have already heard that such unfair relationships manifest themselves in many questionable practices by some  lenders, and not just those who might be referred to as loan sharks.
One such practice is the imposition of late-payment charges of £20, £25 or £30 by credit card companies, many of them household names. People might be regular payers, be busy or have momentary cash flow issues; none the less, they get hit by late charges that are relative to the size of their minimum payments. Many people, particularly those who are already on lower incomes, make only the minimum payment. They may already be finding it difficult to pay off their charges, and penalty charges can make it nearly impossible to pay the principal amount. 
All the major banks and credit card companies indulge in such practices—including Lloyds TSB, Barclays, HSBC and NatWest, which is now part of the Royal Bank of Scotland Group. I name those companies deliberately, Sir John, so that their public relations officers and top executives will read about this debate in tomorrow's clippings. Late payment charges often bear no relation to any risk of default, or indeed to the administrative costs of sending out a computerised reminder letter. They are simply onerous, money-spinning penalty clauses that exist because the balance of power between the lender and the borrower is so unfair. 
There are other manifestations such as penalty charges or referral fees—call them what we like—for temporary breaches of overdraft limits. It is often hard not to breach an overdraft limit and avoid such a charge. Have hon. Members noticed that if, in this computer age, they ring up their bank, the computer always says ''no'', because using an overdraft limit is de facto evidence that an increase should not be given. It is impossible for people reasonably to avoid many of those charges. 
The key legal provision of the 1974 Act is section 138, which sets out when credit bargains are extortionate. Although it is clear, it needs to be interpreted by the courts. In individual cases, the courts have found that many such practices are extortionate and that there unenforceable penalty clauses. In other cases, banks, when challenged, will settle quietly out of court because they do not want to create precedents that would otherwise prejudice their existing practices. 
As my right hon. Friend the Member for Leeds, West points out, individuals are required to take a challenge to court in relation to unfair relationships. That highlights the time and cost implications for people who take on large corporations and multinationals. In practice, even if the big corporations lose cases to one or two determined individuals, they know that the authorities—in this case the Office of Fair Trading—have not shown evidence that they have run with the issue and enforced decisions to stop those practices. The authorities have a very poor record of tackling financial companies for these practices following court decisions. 
I do not want my remarks to be too lengthy, so I will ask the Minister for a few reassurances. First, these clauses are not going to hamper the ability of people to go to court in the first place if they want to, though I have some sympathy with the point made by the hon. Member for Tewkesbury but late charges such as those that I have been discussing might now be considered extortionate under the previous Act but may not be thought unfair under the future Act if they are advertised clearly and things stated up front. Will the Minister assure us that the ability of individuals to challenge practices of that sort will at least be matched, if not enhanced, by the new concept of unfair agreements. 
Secondly, with respect to enforcement in practice, I seek reassurance that the Office of Fair Trading will improve its record, not just when the new Act comes in, but right now under its existing powers, so that people do not have to go to court in the first place. We will deal later with provisions to do with the OFT, but I mention it here because of the reality that unfair practices do exist. I would like some reassurance that the tiger will grow some teeth, because otherwise the balance of power will remain unchanged, and unfair relationships between lenders and borrowers will persist.

John Battle: I was interested in the debate just before the lunch break, because what is most encouraging is that we are all regulators now. When the hon. Member for Tewkesbury spoke about credit cards, he was actually pressing for more regulation, and he was absolutely right. We have had some 50 years during which the market was not properly regulated even by the 1974 Act, and he himself put it well when he said that we really have a duty to make sure that we protect the poorest from paying the most, which is what happens in the borrowing market: those at the bottom of the pile pay most. So I welcome the fact that we are all regulators now.

Laurence Robertson: The right hon. Gentleman mentioned the term ''better regulation'', and that is what I wanted to press for.

John Battle: I am delighted that the Conservative Party is in favour of better regulation. We will go all the way with it, and we can have meetings and Committees like this from now to eternity. That is the point.
The problem with this Bill is not the intention. Our intention is to have better regulation and to make this a better Bill. But we have a difficulty, because we are caught between two words that could be incredibly vague—unfair and reasonable. At the same time, we want an open policy, so vague words help. Philosophers refer to the huge vague being incredibly helpful, because it is a loose holdall. We need to be specific to ensure that we actually catch people with the language that we use, as it were, and to make sure that the law is effective. It is that tension between the vague and the specific that we have to address, and I want to make a helpful suggestion, if I may. 
I have not moved an amendment, but I want to introduce a concept that is not so broad that it will not do anything but which has quite particular links to  other legislation and might enable us to sharpen up the Bill. We do at least have consensus in this Committee: we all agree that unfair relationships between creditors and debtors are wrong. I have never heard anybody arguing that those lending the money are being unfairly treated by those borrowing it. I do not get the impression that the banks are saying: ''The people borrowing our money are screwing us terribly.'' Quite, honestly, that is not the tone of the debate. So I welcome the fact that in the Bill we have moved away from the extortionate credit bargains. That phrase itself did not work. 
I sought the list of the number of times that poor people, who pay the most through doorstep lending, were able to bring a case to court. The answer is none. Therefore, I welcome the Bill. 
The fact that the Bill contains the words ''Unfair relationships'' in the heading and 
''Unfair relationships between creditors and debtors''
in the sub-heading is real progress. It goes even further, and refers to the court determining whether 
''the relationship between the creditor and the debtor arising out of the agreement . . . is unfair to the debtor''.
It does not say ''unfair to the creditor''; it says ''unfair to the debtor''. My argument is that we must shift the law in favour of those who are hit hardest by credit card borrowing and doorstep lending. 
We must be careful in the complex market not to dismiss the whole lot in grandiose terms that oversimplify the debate. There is a big difference between the high street banks and credit cards, between store cards and what is called the ''sub-prime lending'' market, in which people go round knocking on doors, practically lending money on the doorstep, just with a handout or an advert—the hon. Member for Richmond Park referred to adverts. We need to segregate the market, and know what the problems are that we are trying to address.

Jenny Tonge: Whether it is extortionate or whether it is an unfair relationship, the point has been made over and again that the person still has to go to court to get redress. As the hon. Gentleman said, the hardest hit debtors are the least likely to go to court. If they did not do so under the previous legislation, they will not do so under this Bill. Surely prevention is better: make sure people know what they are letting themselves in for in the first place.

John Battle: The Minister accepted—he can speak eloquently for himself—the hon. Lady's point about education right through the system. I am neither a mathematician nor a lawyer, but the court issue is important. Some Members suggested that getting a case to court will act as a test and help to define ''unfair''. It will not. Every case will have to stand on its own. No precedent will be set, because cases will not be heard in the criminal court but in the ordinary county courts.
The hon. Member for Tewkesbury has a point; we must look at the definition to some extent. What do we mean by ''unfairness''? We are going in the right direction—it is the unfairness of the relationship, where the lender can crush the borrower, particularly  if that borrower is poor, through interest rates and extra charges, by changing the conditions without properly informing people. 
I would suggest the rather narrow concept of ''proportionate to the means''. What do I mean by that? I want to stop going round in the circles that the hon. Member for Richmond Park referred to and put that proposal to the Minister. Take the example of a lone parent who has had to borrow some money. The man may come round with his dog to collect the debt payment, and the lone parent may not be able to keep up with payments on other bills. Not everyone pays by direct debit, so the person might be in trouble with housing or council tax payments. 
When people default on bills they get taken to court. When they go to court they have to fill in a form—a statement of income and outgoings—on which it states: 
''The information on this form may be used by a magistrates' court, or any other authorised agency acting under the court's instructions, to enforce collection of any court-ordered penalty imposed against the person named on the form in the event of non-payment of that penalty.''
If they go court because they defaulted on their rent and the court says, ''Okay, you owe £500 rent and we will fine you £2,000 on top of that for the court costs'', how will they pay that fine if they have no money? Therefore, the fine imposed by the court must be proportionate to people's ability to pay it back. 
Why can we not invert the idea and make sure that before creditors lend money to people they check whether those people are capable of paying it back. Unlike a Capital One application—which asks about three questions, the main one being, ''Do you have a house that we can have a claim on later?''—a court statement is very clear. It asks for personal details: date of birth; national insurance number; occupation; and employer. It asks for details on income: if the person is employed, it wants to know about pay and any other income; and if he or she is unemployed, it wants to know about income support, pension credit or any other benefits. It asks for details on weekly outgoings: rent, mortgage or board; council tax; food; county court orders or fines that must be paid; travel expenses; clothing; telephone, including a mobile; gas; electricity; water; insurance; fuel; loans; television, including cable or video; lottery; entertainment; drinking; smoking; car insurance; catalogues; hire purchase; credit cards; and any other outgoings. That is an incredible list to ascertain whether people can pay a court fine. I simply suggest to the Minister that we ask that that proportionality be part of the process when dealing with the relationship between creditor and debtor. The ''unfair'' relationship between creditor and debtor is a great concept, but it pushes it into the court. 
I take note of some of the comments made by the hon. Member for Tewkesbury, but if individual cases are left to the Court without guidance, every case will be judged on its own merits. We could do a bit more to weight the balance in favour of the person who borrows and gets into debt.

Gregory Barker: I have listened very carefully and strongly agree with much of what the hon. Gentleman has said. On the issue of unfairness and the weight in favour of the creditor or the debtor, would he not agree that many people, particularly the most vulnerable, who often find themselves at the grubbier end of the loan market, are by necessity in very difficult circumstances? They will not look into those issues thoroughly. They will not be thinking straight. They may not make a rational decision. Through force majeure—perhaps through their own fault or perhaps not—they will be put in a very difficult and trying situation, and they will be desperate. Some companies take advantage of that desperation, and the measures the hon. Gentleman proposes seem a very sensible antidote to that problem.

John Battle: I make cheap political comments about whether Conservative Members are now in favour of regulation. In all fairness, I deeply appreciate the comments that the hon. Member for Bexhill and Battle has made, and the empathy and understanding that he and his colleagues have shown in these matters. Sometimes we find it hard to imagine the circumstances of the people who are lent money. A relationship may have broken up, another house must be set up and money may be needed pretty quickly, perhaps for a bed or a cooker, in extreme circumstances. If a child arrives, money may be needed to buy a cot, or to send a child to school. That money must be raised when people are under incredible pressure and with other demands on them. People are living on incredibly low incomes at the bottom end, and when a loan has been taken out, it is not surprising that people become absolutely desperate. I am saddened by such tragic cases. We do not know the scale of the problem because sometimes families, friends and relatives help out. However, we could do more in law to back those people up, and that is precisely the purpose of the Bill.
The Minister made a good point early on, and he has made it consistently throughout the Bill, that we could take a total line—I doubt Conservatives would even go this far—and propose to ban all lending. We do not ask for that and no one suggests it. We must strike a fairer balance between good lending so that people can borrow—because they need to borrow; and we do not want to stop lending—and making sure it is fair, so the person borrowing knows what they are getting and is able to make the repayments rather than be driven down into more debt. Having that sense of proportion could be important, because the unfair relationship between the creditor and debtor may be built into the agreement—the amount of money plus interest and charges that are written in may be disproportionate. 
That is why the problem must be considered at the early stage. The hon. Member for Richmond Park asked at what stage we should deal with these matters. It should be right at the signing of the agreement. Caveat vendor should apply, because at that point the lender can check out properly the borrower and use the statement of income and outgoings that the court might use. 
I am grateful to Zaccheus 2000 Trust, the body that has campaigned unstintingly and with some energy on poverty in Britain, and that has pushed the idea that more should be done. In 2002, it had a letter from the then Lord Chancellor, in which it was spelled out that Parliament could take notice of the enforcement of fines regulations. The Lord Chancellor wrote: 
''For fines to be effective they must be proportionate to means. To enable this it is vital that magistrates have accurate and up to date information about an offender's means at the time of sentencing, and throughout the enforcement process.''
I am not for one minute suggesting that everyone at the poorest end who borrows money is an offender. I am merely arguing that there ought to be proportionality before these companies push money at people who will never be able to pay it back. I am convinced that companies know that they will be unable to pay it back. That is what we must challenge, as they are driving people into debt. I am not asking the Minister to put the word ''proportionality'' in the Bill, and I will not be supporting the amendment as the necessary words, however vague, are already in the Bill. 
On the Floor of the House and in the Committee, the Minister referred to the process of our deliberations. It is significant that there is almost unanimity of intention and spirit on what we want from the Bill. We believe that we are going some way to rebalancing the relationship between creditor and lender. We would like it to be tighter to ensure that it is effective; that is the spirit and intention of the Committee. 
A Minister's word is law if said on the Floor of the House or in Committee, and the lawyers must work with that. Perhaps the courts should be encouraged to say that proportionality should be a factor. That would provide a narrow definition of unfairness for the benefit of the borrower. Guidance could be issued under section 44 of the 1974 Act, to which my hon. Friend the Member for Rhondda referred. 
It is important that we make clear our intentions in the Bill. It is obvious that the intention is not to say that the unfairness is in favour of the lender. The intention is to deal with the unfairness against those who borrow because they simply cannot pay the money back.

Gerry Sutcliffe: This has been a worthwhile debate on an issue that unites the Committee on a common objective. There is no difference between us on what we believe the end result should be. We have, necessarily, focused on the vulnerable who are most likely to be exploited. We must remember the context of the Bill: the UK has the most mature credit market in Europe. The principles that we are trying to adopt reflect the wide range in the market.
As my right hon. Friend the Member for Leeds, West pointed out, my word is law; therefore I shall keep my remarks short and I shall be very careful about what I say. The context of the debate is something on which we have all agreed: the extortionate credit test does not work, and it does not work because it is too prescriptive. Hon. Members mentioned several cases arising from the extortionate  credit test. It was not working; there was a need for something else. 
However, the something else—the unfairness test—is not without parameters. There is a spirit of fairness all the way through the various legislation and practices that affect the credit industry. The Financial Services Authority values highly the principle of treating customers fairly. The provisions of the Consumer Credit Act 1974 stipulate that a licensee must be fit to hold a licence, and the priority is that customers be treated fairly. The industry has its own code of practice on fairness. Therefore the parameters are very clear on how the test could be applied. 
The failure of the extortionate credit test to meet all the requirements is a reason for not being too prescriptive about the unfair credit test. The extortionate credit test does not work.

Laurence Robertson: I agree that the extortionate credit test does not work. Nevertheless, elements of it are quite prescriptive. We are repealing those; it is not just a matter of adding the clause on unfairness. We are actually repealing some of the details of section 138 of the 1974 Act; we are removing 138(2)(a):
''the comparison of interest rates prevailing at the time it was made''.
In a sense, we are moving backwards.

Gerry Sutcliffe: I understand why the hon. Gentleman says that, but we are moving forwards, not backwards. Despite those provisions, that test was not delivering what was required. That is why we must have an unfairness test that can examine any of the terms of an agreement, the way in which a creditor has exercised or enforced his rights, and anything the creditor does—or fails to do—in relation to that agreement. The court can take into account all matters that it deems relevant when determining whether a relationship is unfair.
We have an excellent opportunity to get this right: through the spirit and framework of the meaning of unfairness and responsible lending; through informing consumers; through the licensing regime that we shall introduce; and through better powers for the Office of Fair Trading so that it can tackle bad practice. 
We must consider the range of issues under discussion. The hon. Member for Richmond Park referred to loan sharks. The Government are addressing that issue with two pilot programmes that were introduced in Birmingham and Glasgow. Those programmes specifically tackle those people mentioned by my hon. Friend the Member for Leeds West who threaten physical violence and use the most unacceptable practices to extort money. We are also working with credit unions and the financial inclusion fund to see how those matters can be dealt with. The unfairness test relates to all consumers, and they will have the opportunity to allege unfairness in the courts—an option that they do not presently have. 
Hon. Members raise those issues because of their frustration that the industry is not acting responsibly across the board. My hon. Friends the Members for Warwick and Leamington, for Rhondda, and for Newcastle-under-Lyme cited incidences that they found unacceptable. As my right hon. Friend the  Member for Leeds, West said—although I am not saying it—the spirit and intention of what the Committee as a whole wants is clear. 
I hope that the unfair relationship test is appropriate. The two amendments would represent a step backwards. I echo the question of my hon. Friend the Member for Warwick and Leamington to the hon. Member for Richmond Park: what is the definition of responsible lending? There is a danger of becoming prescriptive and missing something. The majority of lenders are responsible practitioners who operate within codes of practice and within the framework of the law. They may be competitive in their marketing of products, but on the whole most operate fairly. However, we are talking about those who do not operate fairly, and who will try to find loopholes in the law so that they can get their products across to the most vulnerable. 
We could become too prescriptive. The matter is not open-ended, because the industry finds certainty within the codes of practice and the financial services authority. The industry, through its own codes—the banking code, for example—operates within fair parameters. Someone described unfairness as rather like the proverbial elephant: you know it when you see it, but it is not difficult for a lender to know when it is a priority. Unfairness is like that elephant in that it is clear what we mean by unfairness, and it is clear what the Committee means by unfairness. Through the spirit and intention of what we are trying to achieve, the industry knows what we mean by unfairness. 
The two amendments do not take us forward; in fact, they take us backwards and are too prescriptive. I ask the hon. Member for Richmond Park not to press the amendments. We shall discuss later the points raised by my hon. Friends about the powers of the OFT and the banking code. The British Banking Association and others will take on board many of the issues that my hon. Friend for Leeds, West has raised. The Treasury Select Committee and others will monitor the success of the regulations that are already in place. The Bill will get across the fundamental principle of responsible lending and borrowing and deal with unfairness, where it exists.

Jenny Tonge: If the Minister looks at Hansard tomorrow, he will find that he used the phrase ''whether the creditor lent responsibly'' several times, so I want to see him vote against the amendment and eat his words.
Question put, That the amendment be made:—
The Committee divided: Ayes 3, Noes 10.

Question accordingly negatived. 
Amendment proposed: No. 23, in clause 19, page 13, line 19, at end insert— 
'(2A) In particular, when determining whether an agreement is unfair, the court should consider— 
(a) whether the terms of the agreement, which the lender is seeking to enforce, were clearly set out in the pre-agreement statement provided by the lender to the debtor as set out in subsection 7B of section 6 of this Act; 
(b) whether the lender has complied with all other requirements of this Act and the 1974 Act; 
(c) whether the initial terms of the agreement might be considered to be significantly unfavourable to the debtor when compared with other similar agreements, when there are no compensating factors within the said agreement available to the debtor; and 
(d) whether the running of the agreement might be considered to be significantly unfair to the debtor when taking into account the relative financial strength of the parties to the agreement.'.—[Dr. Tonge] 
Question put, That the amendment be made:—
The Committee divided: Ayes 3, Noes 10.

Question accordingly negatived. 
The Chairman, being of the opinion that the principle of the clause and any matters arising thereon had been adequately discussed in the course of debate on the amendments proposed thereto, forthwith put the Question, pursuant to Standing Orders Nos. 68 and 89, That the clause stand part of the Bill. 
Question agreed to. 
Clause 19 ordered to stand part of the Bill. 
Clauses 20 and 21 ordered to stand part of the Bill.

Clause 22 - Further provision relating

Laurence Robertson: I beg to move amendment No. 24, in clause 22, page 16, line 6, leave out 'alleges' and insert 'demonstrates'.
I was concerned by the word ''alleges'', because it is easy to allege without substantiation. In discussing on the previous clause, I spoke at great length about being clear as to what was an unfair agreement. The subsection that I seek to amend states: 
''If, in proceedings referred to in section 140B(2), the debtor or a surety alleges that the relationship between the creditor and the debtor is unfair to the debtor, it is for the creditor to prove to the contrary.''
The question is whether that shifts the burden of proof. I understand that the Minister will respond by saying that it does not, but it depends: if a creditor takes the matter to court, that is one thing, but for a debtor to take the matter to court is quite another with regard to the burden of proof. However, if the debtor  only has to ''allege'' that it is unfair in order to require the creditor to prove to the contrary, that is not a strong enough word. There must be some demonstration from the person who has taken the matter to court that it is unfair. Otherwise, there could be frivolous claims. 
The Bill seeks not necessarily to achieve anything for consumers or for lenders, but to achieve fairness in dealings. To ''allege'' something is a bit weak, and I would rather replace that with ''demonstrate''.

Gerry Sutcliffe: Clause 22 (4) provides that debtors must allege unfairness on the part of the creditor before the creditor has to prove that no unfairness has taken place. Under the existing extortionate credit bargain test, the burden of disproving extortion is on the lender. The consumer must only make an allegation that the transaction is extortionate, and the consumer will succeed in his case unless the creditor can satisfy the court on the balance of probabilities that it is not.
There is, therefore, no change from the current law in the way that the existing onus on proof provisions works. That is essential to ensure that consumers do not find it prohibitively difficult to bring a case under the unfairness test. We are concerned that the unfairness test should remain accessible to consumers. There should be effective redress, too, against unfairness. The hon. Gentleman's amendment would place a higher burden on debtors to demonstrate unfairness before being able to bring a case.

Chris Bryant: I am grateful to the Minister, but I understand that we are still keeping subsection (7), which refers to ''extortionate''.

Gerry Sutcliffe: Extortionate will be in the framework of the unfairness test.

Chris Bryant: It would be better if the Bill was replacing subsection (8) with what was subsection (7) in the 1974 Act, because they are virtually the same, except that the 1974 Act refers to ''extortionate'' whereas in this case it refers to ''unfair''. However, there is no provision in the Bill to effect the replacement, so the two would stand next to each other.

Gerry Sutcliffe: That is not the intention. It that is the case, we need to put it right. If we need to make a consequential amendment, we will. I will write to my hon. Friend to ensure that what he has said is correct and then put it right.
Returning to the amendment of the hon. Member for Tewkesbury, it is not clear what is meant by ''demonstrate'' that a debtor will, in essence, have to prove his case. That raises the barrier when we are trying to lower it to make the unfairness test more effective. Lenders will be better able to confirm that their practices are not unfair. 
Furthermore, consumers face problems such as access to relevant market information and documentation. 
To raise the barrier is to head in the wrong direction. Unless the hon. Gentleman is clearer about  what he means by ''demonstrate'' he will fail to achieve his objective.

Chris Bryant: I wish to correct my last intervention. Schedule 4 does repeal subsection (7) of the 1974 Act, which uses the word ''allege''. That will be helpful in rebutting the hon. Member for Tewkesbury. We are therefore not changing from the 1974 position.

Gerry Sutcliffe: I am grateful for that intervention. As I said this morning, it would take too long to go through the details of the Committee's experience of the issues raised, but I am grateful for my hon. Friend's explanation of how he got the first thing wrong and his ability to put the second thing right.
None the less, that bring us no closer to the meaning of ''demonstrate''. It is fair for the hon. Member for Tewkesbury to raise the issue, but on reflection he will find that it leads him down a path that he may not want to take as far as balance is concerned, because the existing tests will remain.

Laurence Robertson: There is the case that it is quoted in the 1974 Act, and I accept that. However, my amendment was not based on that. Normally, allegations must be proved; there is a legal difference in this situation. It would be easy to allege something without having to produce evidence—for example, without having to show that a loan was taken out at X per cent. when similar loans are at X minus 10 per cent. However, in the interest of time I shall not press the matter. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn. 
Clause 22 ordered to stand part of the Bill. 
Clauses 23 and 24 ordered to stand part of the Bill.

Clause 25 - Credit information services

Laurence Robertson: I beg to move amendment No. 25, in clause 25, page 18, line 6, at end insert—
'(2A) It shall be the responsibility of individuals, partnerships, companies or organisations acting as credit information services as defined in section (7B0 of the 1974 Act, or acting as credit reference agencies as defined in subsection (8) of section 145 of the 1974 Act, to take all reasonable steps to ensure that the information which they store on any individual, partnership, company or organisation, and which they impart to a third party, is accurate, up-to-date, and gives a true reflection of the credit record of the said individual, partnership, company or organisation. 
(2AA) Failure to take the steps identified in subsection (2A) shall give rise to the opportunity for the individual, partnership, company or organisation to seek compensation through the civil courts for the keeping of inaccurate information.'. 
I attempted to address this amendment prematurely a few moments ago. It refers to credit agencies that store information on our behalf then pass it on to third parties when asked. I have always been concerned at how some of those companies operate, and I raise the issue seeking to strike a balance. As the Minister said, credit can be good and reasonable—for example, when people borrow for houses, motor cars or business purposes. However, many people cannot get credit or borrow money because of their credit references. It is important that people keep good credit records in order to avoid situations such as the tragic case that we  heard about earlier of the poor gentleman with 22 credit cards. That is undesirable, but it might have happened because of inadequacies in a credit rating system rather than the system being too prescriptive. I regret those situations, just as I also regret the fact that good and decent people of reasonably sound financial standing are turned down for credit. 
We are all aware of how credit agencies work. Some years ago, just after I had moved house, I wanted to take out a short-term loan for some reason that I cannot remember. I was turned down, so I asked why. I was told that it was because of the credit reference. However, the credit reference had nothing to do with me; it concerned the people who had lived in the house previously. I examined their record, and it was disastrous. I could well understand why nobody wanted to lend them money. However, that was not my position. It was a very sloppy way to do business, and it could have become a problem for people who were trying to get credit at a time either of personal difficulty or, alternatively, at a time of great opportunity because their situation might have become worse or they could have lost that opportunity. 
In other areas of life, the provision of incorrect information can often give rise to the right to seek compensation. Through this amendment I propose that credit agencies should be responsible for taking 
''all reasonable steps to ensure that the information which they store on any individual, partnership, company or organisation and which they impart to a third party, is accurate, up-to-date and gives a true reflection of the credit record of the said individual, partnership, company or organisation.''
The amendment also proposes that 
''failure to take the reasonable steps identified in subsection (2A) shall give rise to the opportunity for the individual, partnership, company or organisation to seek compensation through the civil courts for the keeping of inaccurate information.''
That is a departure from the present law—or the present lack of law. The issue concerns me greatly. 
I do not know whether this is the best approach or whether my amendments are worded as well as they could be, but the issue must be tackled. It places no additional regulation or burden on companies. By analogy, other organisations such as banks, solicitors' offices or accountancy firms have a duty of care to the client. The question is: who is the client? A credit agency's client might well be the company that applies to them for the credit reference, but there is still a duty of care to the person on whom information is being kept.

Gregory Barker: My hon. Friend makes some excellent points. It is not just sloppy record-keeping that impacts on individuals: there is the more serious issue of fraud. We have already discussed the issuing of unsolicited application forms and credit cards. If that happens because of inaccurate data, it can give rise to fraud, and in certain cases individuals may have been caused great distress and may even have had to pick up bills. My hon. Friend's proposal has several benefits.

Laurence Robertson: I thank my hon. Friend for that good point. In many ways it is more important than mine. The information may be inaccurate, the accounts may be sloppy, but fraud is also an issue. When I was in business, I had a dispute with a supplier who had given me faulty goods. I refused to pay for them, as was my right. The company took me to court, and the case was struck out. However, the credit reference company had recorded the case as a county court judgment against me—another instance of sloppy record-keeping. I only found that out while conducting another business transaction, and it became a problem. I told the credit company to remove the inaccurate information from its records. The company contacted Leeds county court, and it was taken off the record. However, on a subsequent occasion, the same credit reference company still had that judgment on my record, even though it was wrong. Given the amount of time I spent dealing with that problem, and the business opportunities I could have lost, because a company was saying things about me that were demonstrably untrue, I should have been able to say to them, ''I'm sorry, but you owe me some compensation. Not only have you done this once, but twice.'' That is the mischief that the amendment seeks to remove.

Gregory Barker: My hon. Friend makes a good point. He was able to handle a situation regarding inaccurate information. However, I have dealt with a number of such cases in my constituency of Bexhill, which has a large elderly population. Several of my elderly constituents become very distressed if they think that inaccurate information is being held on them, particularly when it is connected with debt or finance. These people live on small fixed incomes and have no margin of error in their household budgets. My hon. Friend's amendment would help.

Laurence Robertson: I am grateful to my hon. Friend. Some people can deal with those situations, although that does not mean that it is not stressful, time-consuming and costly for them. However, other people are unable to deal with such problems.
The Data Protection Act 1998 gives people the right to find out what is on their record. However, as I found out, it is difficult to get the record changed—even for someone as bolshy as I am. There must be some form of redress if demonstrably wrong information is being released. That is the mischief that I seek to remove with the amendment.

Gerry Sutcliffe: I have some sympathy with the hon. Gentlemen's impressive and articulate double act to promote the case for the amendment, but I hope that I can reassure the hon. Member for Tewkesbury that his amendment is not needed. Although I agree that it is important that credit records are accurate and up to date, the objectives of the amendment are covered in large part by the Data Protection Act 1998.
In part I of schedule 1 to that Act, paragraph (4) states: 
''Personal data shall be accurate and, where necessary, kept up to date.''
''Personal data'' means data relating to a living individual who can be identified from the data or  from other information that the data controller holds or is likely to obtain. That covers all data relating to individuals, sole traders and some partnerships. It means that companies holding credit records on those people are subject to the requirements of the Data Protection Act 1998. 
Section 13 of that Act also allows a person to seek compensation if the Act is contravened. Section 159 of the Consumer Credit Act 1974 allows people to correct the information on their files. It is a criminal offence if someone has agreed to correct an entry and does not comply with that notice of correction. 
The Data Protection Act 1998 does not cover information about companies and organisations. However, most credit records relate to individuals. The 1974 Act allows individuals, but not companies and other bodies corporate, to correct their credit records. Moreover, and perhaps more importantly, the Office of Fair Trading's licensing powers will allow it to take into account poor practices undertaken by businesses holding credit records, and that might form part of its assessment of fitness to hold a licence. The OFT may impose a requirement on the licensee if it is dissatisfied and believes that a requirement could improve matters. 
Although I agree with the sentiment of what the hon. Gentleman is trying to achieve, the provisions of the Data Protection Act and the OFT's licensing powers are adequate. Therefore I ask him to withdraw his amendment.

Laurence Robertson: I am pleased that the problem is in part covered elsewhere. However, I am still concerned as the Minister said that the provision relates only to individuals. Therefore although that provision is welcome, it needs to be extended. I do not wish to detain the Committee if, by and large, this point has been covered. However, I ask the Minister to consider, through this Bill or another bill, extending the provision to companies because, as I said earlier, a company can be one man or woman.

Gerry Sutcliffe: The whole of the Bill relates to individuals. The initial clause deals with the definition of ''individual''. It includes sole traders and partnerships consisting of three persons or fewer. There is an issue about credit references for business, but it is not applicable to this Bill. The hon. Gentleman asks me to examine that in another context, and I am happy to do that.

Laurence Robertson: Given the Minister's response, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn. 
Clause 25 ordered to stand part of the Bill. 
Clause 26 ordered to stand part of the Bill.

Clause 27 - Charge on applicants for licences etc.

Question proposed, That the clause stand part of the Bill.

Laurence Robertson: How will the charges for licences be set? It is not entirely clear. What right of appeal would applicants have?

Gerry Sutcliffe: Licence applicants will be required to pay a charge towards the OFT's costs of carrying out its functions, which is the case under the current system. Payment will be required on application and periodically after that—probably every five years. The OFT will issue a general notice setting out the level of the charges. It is likely that the charge will increase from its current level. The provision is subject to full consultation, and approval of the Secretary of State and the Treasury will be required before charges are set.
The OFT may set licence charges according to the category or subcategory of activity entered into, and those will reflect the cost of monitoring. Very narrow licences may attract a reduced charge, and licences in high-risk sectors may attract a higher charge. Some types of licences will not attract an application or maintenance charge. The increased charge will fund more effective monitoring of licensees, ensuring that they remain fit to hold their licences. Monitoring will include visits to business premises where appropriate. The charges will enable the OFT to use the additional powers that the Bill provides to investigate applicants and licensees. I hope that that was the explanation that the hon. Gentleman required. 
Question put and agreed to. 
Clause 27 ordered to stand part of the Bill. 
Clause 28 ordered to stand part of the Bill.

Clause 29 - Issue of standard licences

Gerry Sutcliffe: I beg to move amendment No. 2, in clause 29, page 21, line 39, leave out 'has applied to' and insert 'would'.
The effect of varying the licence may be to make the licensee's name misleading, as there would be no new application by the licensee to be licensed under a particular name. The amendment resolves that conflict. For example, the name of a business may reflect the fact that its licence covers several subcategories. If the licensee became unfit to operate in one of the subcategories, the Office of Fair Trading should be able to vary the licence. That would prevent the business operating in that subcategory and would protect consumers. However, it may also make the licensee's name misleading. Without the amendment, the OFT could be prevented from taking that step. If it were, it could breach proposed new section 25(1AD). The amendment provides for the OFT to vary the licence. 
The OFT retains the power to vary a licensee's name by compulsion if the name would be rendered misleading by the licence variation. I stress that this is a technical amendment to address a potential conflict. 
Amendment agreed to.

Laurence Robertson: I beg to move amendment No. 26, in clause 29, page 22, line 33, at end insert—
'(4) The Secretary of State may, by order by Statutory Instrument, subject to affirmative resolution, vary the guidance or issue further guidance to the Office of Fair Trading (OFT) with regard to this section, and the OFT shall then be required to have due regard to this guidance.'.

John Butterfill: With this it will be convenient to discuss amendment No. 27, in clause 30, page 22, line 46, at end insert
', and shall have regard to the regulations issued by the Secretary of State.'.

Laurence Robertson: The amendment gives the Secretary of State the right, by order subject to affirmative resolution, to vary the guidance or issue further guidance to the OFT about this section. The OFT is then obliged to have due regard to that guidance.
Over recent months, I have become increasingly concerned about the OFT's considerable powers, which it does not always use in the most fair, sensible and sensitive way. About 15 or 16 months ago, an Adjournment debate in my name was held in the House of Commons on horse racing. The OFT was investigating the way in which horse racing was being operated and regulated. The industry was fearful of the outcome of that investigation. The matter was of particular concern to me as a lover of horse racing, but more relevantly, it is very important to my constituency; the Cheltenham racecourse is, some might say, the jewel in its crown. It was frustrating to discuss that issue in the House of Commons, because it became apparent that there was nothing that we could do to influence the OFT's deliberations. In fact, it refused to meet us; I realise that the Minister would have had greater access. That the OFT could act as a court, seemingly exempt from anyone's jurisdiction, was wrong. Even the Minister was unable to affect its decision. I hope that he will not mind my quoting his words at the time: 
''I am sure that the hon. Member for Tewkesbury will understand that the matters being considered by the Office of Fair Trading fall within its ambit, so it would be inappropriate for me as a Minister with responsibility for competition to seek to intervene in its deliberations.''—[Official Report, 18 September 2003; Vol. 410; c. 1136.]
I understand that to an extent. However, what that means is that a Member of Parliament has no right to take a case to the OFT, regardless of its importance to their constituency. There was nowhere for me to go. That rather long preamble is the background to this amendment. 
The OFT should be under parliamentary control. I do not want to see everything centralised or the Minister running the OFT on a day-to-day basis. That is not why the OFT was set up, and I would not find that desirable. However, it can be demonstrated through Parliament that there is something wrong with the way in which the OFT goes about its business. Given that the Minister generally accepts the points made—as he, and indeed the Sports Minister, did on that occasion—and that we are powerless to do anything, Ministers should have the ability to act when they consider it to be reasonable. That is the basis of amendment No. 26.

Gerry Sutcliffe: The hon. Member for Tewkesbury showed through his horse-racing analogy that he has a particular view of the Office of Fair Trading. He was right at that time on that issue. The quotation that he read out related to a specific issue concerning that  industry at that time, and the investigation into that industry by the Office of Fair Trading. The hon. Gentleman will know that the Government, during the debates on the Enterprise Act 2002 and the Competition Act 1998—with assistance from all the parties in the House—wished to take direct responsibility for many of the competition issues away from Ministers. It was felt that those matters would be better addressed through bodies such as the Competition Commission and the Office of Fair Trading.
I understand the hon. Gentleman's concerns, but unfortunately they do not apply to the issues that we are discussing, and particularly the hon. Gentleman's amendments. The hon. Gentleman said that the OFT is not subject to parliamentary scrutiny, but he will be aware that bodies must appear before the Treasury Committee. It may have been straight after the investigation that the chairman of the OFT appeared before the Select Committee. Parliamentary scrutiny exists in that MPs can question the activities of the OFT. 
As for amendment No. 26, as hon. Members are aware, the Office of Fair Trading is already required to provide guidance on how it will apply the fitness test. Hon. Members have a copy of the draft guidance in the Committee packs that I was asked to provide on Second Reading I am pleased to say that that occurred. The Government believe that the amendment would add an extra layer of information for which the OFT must have regard when assessing fitness. That would not only be an extra layer for the OFT, but applicants and licensees would have to comply with DTI guidance, as well as OFT guidance. That could confuse applicants as to which guidance applied. 
I commend the hon. Gentleman's intention to provide everyone with as much information as possible, but I am sure that he would not wish to add to bureaucracy, or to be chided by my hon. Friend the Member for Leeds, West for supporting and promoting even more regulation. He would not wish to go down that route. We want to keep the application process as simple as possible. As hon. Members can see from their packs, the draft OFT guidance is already comprehensive, and that will be subject to full consultation before it takes effect. As the hon. Gentleman said, the OFT is an independent regulator, and it is responsible for policing the licensing regime.

Laurence Robertson: If the Minister finds that the OFT is not issuing appropriate guidelines to bring about the intentions of the Bill, particularly that of providing fairness, is there anything that he can do without resorting to primary legislation? I am keen to avoid bureaucracy, but I believe that my way of avoiding it is less cumbersome than his.

Gerry Sutcliffe: The OFT will be involved in full consultation while the guidelines are in draft form. I am sure that the industry and other stakeholders who are not happy with those draft guidelines will seek to have them changed. The Minister will be inundated  with requests to explain the spirit and intention of the Bill and what it was aimed at achieving. In that respect, I believe that an opportunity exists to influence the final detail of those guidelines.
I do not think that I will ever convince the hon. Gentleman—[Interruption.] My notes say that I have full confidence in the OFT and its experience, and I do. What we tried to do goes back to our consultation o the Bill with stakeholders.

Laurence Robertson: The Minister said that there was no crossover between the horse racing analogy and this matter, but his answer proves that there is. I asked a direct question. Can he intervene and bring about a change in the guidance? His answer was longhand for no.

Gerry Sutcliffe: No is the answer to that. It was not a long way of saying no; it was right to say that the guidance that is being put forward, which is in draft form for consultation, does not supplant the intention of the law. The intention of the law is clear, and the Office of Fair Trading will act accordingly. If things are not working properly, we will address that through the review processes contained in the Bill.

Laurence Robertson: How?

Gerry Sutcliffe: We are encouraged by the Opposition to reflect on many of the Bills that come before the House, to review the question of application and how Bills are working. That was not done in the case of the Consumer Credit Act 1974. That Act has never been reviewed during its 30 years, until now. That will not be the case with this Bill because of the nature of the sector.
I fully understand and acknowledge the hon. Gentleman's concern about the Office of Fair Trading. If that concern is great, the Minister can arrange for him to meet that body. I am sure that that would be an exciting meeting, and I would look forward to hearing the outcome of discussions on the matters that he raised. The Government believe that the amendment would add to bureaucracy. We are trying to keep matters as simple as possible and not add burdens to business. In that spirit, I hope that the hon. Gentleman will withdraw his amendment, but I shall understand if he does not wish to do so.

Laurence Robertson: The analogy that I drew was an exact one. The Minister admitted that he could not instruct the OFT to—

Gerry Sutcliffe: No, no, no.

Laurence Robertson: I inferred that the Minister said that he could not instruct the OFT to change the guidelines.

Gerry Sutcliffe: The hon. Gentleman has known me long enough to know that if I wished to say that, I would say that, but that was not my answer. I am content with the answer that I gave to the hon. Gentleman, which was that there is an ability to change the draft guidelines, and the OFT cannot supersede the law.

Laurence Robertson: We must leave that for history to judge, but it strikes me that if we do not put in the Bill something along the lines of my amendment, it could  lead to inappropriate guidelines, and that would in turn lead to the same situation that we saw in the horse racing industry. That situation could have been terminal for that industry. It was very serious, and I do not wish to see it replicated. I have made my point; I look around the Committee Room and see that I am unable to win the vote, even if I were to press it. I shall not waste the Committee's time in so doing. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn. 
Question proposed, That the clause, as amended, stand part of the Bill.

Laurence Robertson: May I just take a few moments of the Committee's time to ask—[Interruption.] I do not know whether that refers to me. I ask for clarification as to why subsection 2A(d) is relevant to the Bill. In so asking, I am happy to condemn discrimination on the grounds of sex, colour, race or ethnic or national origins, and, indeed, many other forms of discrimination. During the lunchtime break, I asked a question in the Chamber on Ethiopia and Eritrea.  International development, as you are well aware, Sir John, is one of my passions. However, I do not see the relevance of that to this clause. I hope that vexatious litigants will not seek to prevent otherwise good-standing people from running their businesses and being awarded licences. I can see the relevance of that paragraph to general life, but I cannot see the relevance to the clause. I would appreciate an explanation.

Gerry Sutcliffe: I can explain very quickly, in the time permitting, that the clause represents the current test, so it already falls within that test with reference to equality issues.
Question put and agreed to. 
Clause 29, as amended, ordered to stand part of the Bill. 
Further consideration adjourned.—[Mr. Watson.] 
Adjourned accordingly at twenty-nine minutes to Six o'clock till Thursday 27 January at twenty-five minutes past Nine o'clock.